WRAPUP 7-Cyprus to reopen banks, impose capital controls

NICOSIA, March 27 (Reuters) - Cyprus trucked out cash for
its banks on Wednesday night to prepare them to reopen to a
siege by anxious depositors, with tough controls imposed on the
use of currency to avert a bank run as a result of its harsh
rescue deal.

The Central Bank said banks would open their doors at midday
(1000 GMT) on Thursday after nearly two weeks when Cypriots
could get cash only through limited ATM withdrawals, while the
government hashed out the rescue to stave off financial ruin.

Among measures imposed to prevent savers from stripping the
bank vaults clean when the doors open: withdrawals will be
capped at 300 euros ($380) per day, travellers may take no more
than 3,000 euros abroad per trip, and funds can be sent abroad
only by businesses that can prove they are paying for imports.

The European Central Bank delivered extra banknotes to
Cypriot banks on Wednesday evening to meet demand, a source
familiar with the situation said. The ECB declined to comment.

At least three container trucks loaded with cash pulled up
inside the compound of the central bank in Nicosia in early
evening, a Cyprus central bank source said. A helicopter hovered
overhead and police with rifles were stationed around the
compound.

The controls, announced in a finance ministry decree, would
allow unlimited use of credit cards within Cyprus, but set a
monthly limit of 5,000 euros for Cypriots using credit cards
abroad. Payment by cheques would be banned.

The central bank would review all commercial transactions
between 5,000 and 200,000 euros, and scrutinise any larger
transactions on a case-by-case basis.

A central bank official said the measures would initially be
imposed for four days, and would be reviewed and relaxed as soon
as possible.

"The rationale is that these measures will be reviewed on a
daily basis, so if there is the possibility of relaxing them we
will," Yiangos Demetriou, head of internal audit at the Central
Bank, said on state television.

Cyprus's financial difficulties have sent tremors through
the already fragile single European currency. The imposition of
capital controls has led economists to suggest that a
second-class "Cyprus euro" could emerge, with currency trapped
on the island worth less than money that can be freely used
abroad.

Cyprus has a huge financial sector with 68 billion euros in
deposits, operating as an offshore haven for rich Russians and
other foreigners. Its bailout is the first time that EU
officials have demanded bank depositors take losses as the price
of a rescue, causing outrage on the streets and fear that savers
will flee with their cash.

Finance Minister Michael Sarris has said capital controls
will be "within the realms of reason". But Cypriots, fearing for
their savings and angered by the bailout deal struck on Monday
in Brussels, are expected to besiege banks.

Under the bailout, Cyprus's second largest bank will be
closed and its guaranteed deposits of up to 100,000 euros
transferred to the biggest bank. Deposits of more than 100,000
euros at both banks would be frozen.

Big depositors will lose money, but the authorities say
deposits up to 100,000 euros will be protected, a reversal from
an earlier plan that would have hit small depositors as well.

Cypriots have taken to the streets of Nicosia in their
thousands to protest against a bailout deal that will push their
country into an economic slump and cost many their jobs.

European leaders said the bailout deal averted a chaotic
national bankruptcy that might have forced Cyprus out of the
euro.

Critics said the capital controls, which contradict the EU
principle of free flow of money and goods, might be hard to give
up.

"This is a typical set of exchange control measures, more
reminiscent of Latin America or Africa," said Bob Lyddon,
General Secretary of the international banking association IBOS.

He doubted that they would be in force for only a matter of
days. "These are permanent controls until the economy recovers,"
he said.

A Reuters poll of economists this week showed 30 out of 46
believed the controls would last months, while 13 expected they
would endure a matter of weeks. Three said they could last
years.

POPULAR ANGER

The terms of the 10-billion euro ($13-billion) rescue from
the European Union, International Monetary Fund and European
Central Bank have stirred popular anger within Cyprus at the
country's partners in the EU, notably Germany, the bloc's main
paymaster and fiercest advocate of austerity.

The measures have caused alarm among ordinary Cypriots, who
worry that they will not be able to pay their bills or draw
wages normally paid by cheque.

A 42-year-old Romanian hotel maid, who gave her name as
Maria, said she was worried she would not be able to cash her
pay cheque due on Friday.